WPI 165.00 Negligent Misrepresentation—Introduction

Scope of chapter—Business transactions and pecuniary interest. Washington courts have adopted standards for negligent misrepresentation as set forth in sections 551 and 552 of the Restatement (Second) of Torts. Specialty Asphalt & Constr., LLC v. Lincoln Cnty., 191 Wn.2d 182, 421 P.3d 925 (2018). Under those sections, liability for negligent misrepresentation is limited to misrepresentations made in the course of a business transaction or a transaction in which the maker of the misrepresentation has a pecuniary interest. See, e.g., Restatement (Second) of Torts § 552(1) (1977).

In limited circumstances, a person may be liable for negligent misrepresentation when it occurs outside a business transaction or the person lacks a pecuniary interest. The Restatement (Second) of Torts notes that liability for a negligent misrepresentation can also exist when the misrepresentation results in physical harm. See Restatement (Second) of Torts § 552 cmt. a (1977). The Restatement (Second) of Torts sets forth standards of liability for cases involving physical harm, see Restatement (Second) of Torts § 311 (1965), but Washington courts have not yet adopted this Restatement section. See Richland Sch. Dist. v. Mabton Sch. Dist., 111 Wn.App. 377, 388–89, 45 P.3d 580 (2002) (declining to adopt section 311 under the facts of the case and noting that Washington courts have not otherwise addressed the issue); see also Isakson v. WSI Corp., 771 F.Supp.2d 1257, 1264 (W.D. Wash. 2011).

Pending further development of standards for liability in other contexts, the instructions in this chapter are limited to those involving business transactions or pecuniary interests.

Two types of negligent misrepresentation. A negligent misrepresentation can be based on either an affirmative misstatement or a failure to disclose information. It is important to distinguish between the two types of cases, as different standards of liability apply. Compare Restatement (Second) of Torts § 552 (1977) (addressing affirmative misstatements), with Restatement (Second) of Torts § 551 (1977) (addressing failures to disclose information). The standards for a failure to disclose information require additional proof, including proof that the defendant owed a special duty to disclose the information to the plaintiff.

For cases involving an affirmative misstatement, the primary instruction is WPI 165.01 (Negligent Misrepresentation—Affirmative Misstatement—Burden of Proof on the Issues). For cases involving a failure to disclose information, the primary instruction is WPI 165.02 (Negligent Misrepresentation—Failure To Disclose Information—Burden of Proof On The Issues), but two additional instructions likely will be needed: WPI 165.03 (Negligent Misrepresentation—Failure To Disclose Information—Duty To Disclose), and WPI 165.04 (Negligent Misrepresentation—Failure To Disclose Information—Fiduciary Relationship—Relationship of Trust And Confidence—Definitions).

Common law, statutory, and contractual duties to disclose information. The Restatement (Second)'s standards are phrased primarily in terms of common law duties to disclose information. See, e.g., Restatement (Second) of Torts § 551(2) (1977) (setting forth circumstances under which a party has a duty to disclose information). The pattern instructions in this chapter follow the Restatement (Second)'s approach in expressing the common law duties to disclose.

Sometimes, however, a duty to disclose information is created by contract or statute. For example, a seller of real estate is statutorily required to disclose certain information about the property being sold. See RCW 64.06.013–.022. A statutory or contractual duty may sometimes be used as the basis for a negligent misrepresentation claim. The pattern instructions can be easily modified to incorporate one of these other duties.

Clear, cogent, and convincing evidence standard. Unlike most tort claims, but consistent with the treatment of claims for fraud, the burden of proof that the plaintiff must meet for each element of a negligent misrepresentation case is clear, cogent and convincing. Specialty Asphalt, 191 Wn.2d 182. If other issues in the case are subject to a preponderance standard, the instructions will need to direct the jury to apply the correct burden of proof to the respective claims.

Comparative fault. Negligent misrepresentation claims are subject to principles of comparative fault. Lawyers Title Ins. Corp. v. Baik, 147 Wn.2d 536, 550–54, 55 P.3d 619 (2002); ESCA Corp. v. KPMG Peat Marwick, 135 Wn.2d 820, 829–32, 959 P.2d 651 (1998). Under comparative fault principles, a plaintiff's own negligence in contributing to his or her own damages serves to reduce the plaintiff's recovery, rather than to bar recovery entirely. Baik, 147 Wn.2d at 551. Washington courts have thus rejected the Restatement (Second)'s position that a plaintiff's negligence in relying on the negligent misrepresentation is a complete bar to recovery. Baik, 147 Wn.2d at 550–51.

The principles of comparative fault do not apply until after the plaintiff has established the elements of the claim. One of the elements requires the plaintiff to prove that his or her reliance on the misrepresentation was reasonable under the circumstances. If the plaintiff was negligent in a manner that rendered the reliance unreasonable, then the plaintiff is barred from recovery, not because of the application of comparative fault, but because the plaintiff has failed to prove the elements of the claim. Baik recognizes as much, indicating that a plaintiff must first show reasonable reliance and proximately caused damages before comparative fault comes into play. See Baik, 147 Wn.2d at 551:

Independent duty doctrine. The independent duty doctrine must be considered when a party to a contract brings a tort action against another contractual party. Under the doctrine, “‘[a]n injury … is remediable in tort if it traces back to the breach of a tort duty arising independent of the terms of the contract.’” Elcon Constr., Inc. v. E. Wash. Univ., 174 Wn.2d 157, 165, 273 P.3d 965 (2012) (Chambers, J., concurring) (quoting Eastwood v. Horse Harbor Found., Inc., 170 Wn.2d 380, 416, 241 P.3d 1256 (2010)). However, if there is no tort duty distinguished from the contractual obligation, then the parties are limited to contractual remedies. The independent duty doctrine is applied to a narrow range of cases, especially those involving product liability, construction on real property, or sale of real estate. Elcon, 174 Wn.2d at 165; Eastwood, 170 Wn.2d at 406–07.

The independent duty doctrine was previously known as the “economic loss rule.” Elcon, 174 Wn.2d at 165. The old economic loss rule “bar[red] recovery for alleged breach of tort duties where a contractual relationship exist[ed] and the losses [were] economic losses.” Alejandre v. Bull, 159 Wn.2d 674, 683, 153 P.3d 864 (2007), abrogation recognized, Key Dev. Inv., LLC v. Port of Tacoma, 173 Wn.App. 1, 24, 292 P.3d 833 (2013). By comparison, the independent duty doctrine makes no inquiry as to whether losses were economic in nature, focusing instead on whether there is a tort duty that is independent of the parties' contractual obligations, an inquiry that involves a case-by-case analysis including considerations of “common sense, justice, policy, and precedent.” Elcon, 174 Wn.2d at 165; Eastwood, 170 Wn.2d at 389. Thus, cases decided under the older rule which prescribed categorical distinctions may no longer be good law.

For example, the former economic loss rule was applied to bar a negligent misrepresentation claim asserted between parties to the sale of real property. See Alejandre, 159 Wn.2d at 681–89. Whether the new independent duty doctrine applies to negligent misrepresentation claims is not clear. The only indication to date is dictum from Jackowski v. Borchelt, 174 Wn.2d 720, 738, 278 P.3d 1100 (2012). After holding that the duty to avoid fraudulent misrepresentation is independent of the contract, and thus the tort can be maintained between contractual parties, the Jackowski court went on to conclude: “The same is true for a claim of negligent misrepresentation, but only to the extent the duty to not commit negligent misrepresentation is independent of the contract.” Jackowski, 174 Wn.2d at 738.

The scope, rationale, and analysis of the independent duty doctrine remain in a state of flux. Compare the plurality and concurring opinions in Eastwood (a plurality opinion was signed by four justices, with two separate concurring opinions) and the majority and concurring opinion in Elcon (the concurring opinion disagreed with the majority opinion as to the fundamental underpinnings of the independent duty doctrine and its relationship to the economic loss rule). Practitioners will need to review the current state of the case law in determining the application of the independent duty doctrine to claims of negligent misrepresentation.